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President Horacio Cartes suffered a serious blow this week following a deadly attack on a military-police task force (FTC) patrol deployed in the north of the country to combat the self-proclaimed Ejército del Pueblo Paraguayo (EPP) insurgent armed group. The incident took place when a FTC patrol vehicle was hit by a roadside bomb as it travelled on a back road in the Arroyito area of the municipality of Horqueta, Concepción department, in the so-called EPP ‘area of influence’. Eight soldiers were killed in the attack, with those surviving the blast being shot dead by hidden gunmen.

The FTC immediately attributed the ‘ambush’ to the EPP, making it the deadliest attack perpetrated by the group against the security forces to date. This prompted President Cartes to travel to Concepción on 28 August, immediately after returning from an official visit to Mexico (see sidebar) to get a first-hand report on the situation. In Horqueta, Cartes assumed any responsibility that the government may have in failing to protect the soldiers, and he said that his administration would redouble its efforts to defeat the EPP, promising “clear results” before the end of his term in 2018.

The political opposition decried that despite the promises made by Cartes when he assumed office in 2013 that he would defeat the EPP, his administration has not even managed to reduce the threat posed by the group. Indeed, on 29 August detractors of Cartes in the senate (including dissidents from the ruling ANR-PC) promoted and approved a declaration calling on the president to make urgent changes to the national public security structure.

The declaration urged Cartes to remove the interior minister, Francisco de Vargas, and the FTC commanders, as well as to “reformulate” the government’s strategy, including the complete revision or dissolution of the FTC, which is widely considered to be a failure, plagued by incompetence and corruption. Government detractors have long complained that, since its creation by Cartes in 2013, millions of dollars have been spent on the FTC but it has failed to produce the expected results.

• Dictatorship victims identified

Paraguayan human rights groups say that they have identified the remains of an Italian woman and a Paraguayan man who were seized during a crackdown on suspected leftist activists during the dictatorship of General Alfredo Stroessner (1954-1989) during the 1970s. Rafaelli Filipazzi, an Italian socialist living in Argentina who ‘disappeared’ in 1977, and Miguel Angel Soler, the secretary general of Paraguay’s Communist party when he was arrested in Asunción in 1975, were identified by DNA tests. Their remains were found at a former police base in Asunción.

*** CARBON CREDITS FOR DEBT. On 20 September, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told the New York Times Climate Forward event that carbon credits could be a way of reducing debt for Caribbean nations. She said: “What do we do in a world where crisis upon crisis has lifted debt burdens on developing countries, and at the same time they are being hit by climate shocks? I do believe it is very important to think about finding a solution that marries these two problems.”

Georgieva added: “On one side debt, on the other side climate. We have been advocating for creating objective platforms in which both public institutions, philanthropic and private sector, can step in…Let’s take [the example of The Bahamas], you suck in carbon, why not provide to your creditors not money but carbon credits that have monetary equivalents? Is that possible? Yes, it is possible. It is hard but it is possible.” The IMF managing director went on to say that the Fund has been thinking about “how to create key performance indicators that would allow a country to swap its debt for climate investments and climate resilience or in a mitigation programme”.

One increasingly vocal supporter of innovative solutions is Prime Minister Mia Mottley of Barbados. She used her September speech to the United Nations General Assembly to argue for a complete reform of the global financial architecture. She argued that financing for the development of small island developing states (SIDS), such as Barbados, cannot be achieved with short-term debt and must be replaced by “at least 30-year money”. She pointed to the fact that Britain only paid off the last of its World War I bonds 100 years after they were issued. She said: “We are no different. We have incurred debts for Covid-19, for climate, and now to fight this difficult moment of inflation and [supply crisis]. Why, therefore, must the developing world now seek to find money within seven to 10 years, when others had the benefit of longer tenures to repay money?”

*** EU BLACKLIST BLOW FOR THE BAHAMAS. On 4 October, the European Union (EU) added The Bahamas, Anguilla, and the Turks & Caicos Islands to its list of “non-cooperative” tax havens. The EU said that these three jurisdictions, which all have a zero or nominal corporate tax rate, “are attracting profits without real economic activity”. The EU’s list is updated every six months, and it requires EU member states to take “defensive measures” against those on the list.

*** LOOKING TO AFRICA. From 1-3 September, Barbados played host to the inaugural Africa-Caribbean Trade and Investment Forum (ACTIF2022) aimed at fostering strategic partnerships between the business communities in Africa and the Caribbean. The forum attracted over 1,000 delegates.

Trade between the Caribbean and Africa is still small, at around US$1.5bn. Africa accounts for only 4.4% (US$800m) of the Caribbean’s total exports to the world. Imports from Africa (US$603m) represent just 1.8% of the Caribbean’s total annual imports. In her speech to the forum, Prime Minister Mia Mottley of Barbados said: “It is not anticipated that we can reverse centuries in a few years, but it is anticipated that there are some who must claim the courage to jump off the ship and make it happen.”

Among the concrete announcements accompanying the forum, the African Export-Import Bank (Afreximbank) announced that it would be taking more interns from the Caribbean as part of its plans to build ties, and it would set up a Caribbean Exim Bank subsidiary with an investment of US$700m. Separately, the bank has allocated US$250m to support African-Caribbean trade and investment.

Seven Caribbean countries have agreed to join a partnership with Afreximbank for the purpose of “ushering in investments to concretise the commercial relations between the two regions, with an immediate focus on establishing an air bridge, and business-to-business match-making through the newly established African-Caribbean Business Council”.

The International Trade Centre (ITC) has estimated that Africa could boost its goods exports to the Caribbean by more than 50% within five years, with the Caribbean expanding its goods exports to Africa by around one-third.

*** OIL MONEY FLOWING FOR GUYANA. On 5 September, Guyana’s central bank said that it expects the country to earn more than US$1bn this year from its share of offshore oil exports, expected to reach 13m barrels of oil. Finance Minister Ashni Singh has forecast GDP growth of 56% for this year.

*** DUTCH PM VISITS SURINAME. On 12 September Prime Minister of the Netherlands Mark Rutte began a two-day official visit to Suriname. It was the first visit to the Dutch-speaking country by a Dutch head of government since 2008 and signals the return to international respectability of Suriname since President Chandrikapersad Santokhi replaced convicted drug-trafficker Desi Bouterse as president in July 2020.

*** QUEEN’S DEATH ACCELERATES CARIBBEAN MOVE TOWARDS REPUBLICANISM. Following the death of Britain’s Queen Elizabeth II on 8 September, at least six Caribbean countries have indicated a desire to follow the recent example of Barbados in November 2021 to remove the British monarch as head of state and to replace him with a homegrown president, namely Antigua & Barbuda, The Bahamas, Belize, Grenada, Jamaica, and St Kitts & Nevis. St Vincent & the Grenadines also indicated a similar intention in July.

A related cause is the demand for reparations from the UK for its role in the slave trade. A reparations commission was established by Caricom in 2013 with the aim of developing the “moral, ethical, and legal case” for compensation to be paid by the former colonial power to Caricom nations. It is thought that the Queen’s death could give further impetus to these demands.

DOMINICAN REPUBLIC | Bringing inflation to heel. Annual inflation in the Dominican Republic in 2022 reached 7.83%. This is higher than the central bank target of 4% plus or minus one percentage point, but inflation is expected to be brought within this range in 2023. There are already signs that inflation is coming down. It peaked at 9.64% in April.
        As with most countries in the region, and beyond food prices were the main driver of inflation at 11.19%, although this is low by regional standards. The central bank praised the government’s support for agricultural production and subsidies for fuel and electricity tariffs.

In our September issue we looked the trends behind the crime crisis in Trinidad & Tobago that had led to the imposition of a state of emergency.  On 6 October, the United Nations Office for Drug and Crime (UNODC) issued its annual Global Study on Homicide, providing more evidence of the crime crisis throughout the Caribbean, not just in Trinidad & Tobago, which confirmed that there are no simplistic explanations. 

The total estimated number of homicides in the world in 2010 was 468,000 giving a global average of 6.9 homicides per 100,000 inhabitants.  The homicide rate in the Americas as a whole is more than double this at 16 per 100,000.  The Caribbean share is even worse, at over 20 murders per 100,000 – which, in turn, hides some even more catastrophic figures.  The homicide rate per 100,000 in Jamaica in 2010 was 52.1, marginally better than the 61.6 registered in 2009.  Other Caribbean countries recording rates in 2010 above the regional average of 20 were: Bahamas (28.0), Dominica (22.1), Dominican Republic (24.9), St Kitts & Nevis (38.2), St Lucia (25.2), St Vincent & the Grenadines (22.0), Trinidad & Tobago (35.2), and Belize (41.7).

Another alarming fact is that while the homicide rate has decreased in many countries, particularly in Asia, Europe, and Northern America, it has risen in Central America and the Caribbean to a level that the UNODC report describes as “nearing crisis point”.  Apart from a temporary drop in 2006, the rate in the Caribbean has increased steadily over the past decade.  Ten years ago, Jamaica was experiencing a still-high level of 34.4 homicides per 100,000, but this was a third less than the current rate.  The rate in Trinidad & Tobago 10 years ago was only 9.3 against today’s 35.2, a nearly fourfold increase.  The 10-year increases in the small islands of St Kitts & Nevis (up nearly three times from 13.0) and St Lucia (up over 70% from 14.6) are also alarming.

The really puzzling fact is that these increases in murder rates do not obviously correlate either with economic cycles and levels of development or with any increase in drug trafficking.  The UNODC report points out that, between 1997 and 2009, drug seizures in the Caribbean decreased by 71% and the Caribbean’s share in the trafficking of US-bound cocaine dropped from 30% to 10% over the same period.  During this period, homicide rates increased in 10 out of 11 Caribbean countries for which data is available.  The only partial explanation that UNODC can advance is that as drug trafficking has decreased so competition between drug-trafficking organizations fighting for their share of a diminishing market has increased.

Caribbean Basin Security Initiative

Coincidentally, shortly after the publication of the 2011 UNODC report on homicide rates, the Caricom countries, the Dominican Republic, and the US met in Guyana on 13-14 October to discuss progress with the Caribbean Basin Security Initiative (CBSI).  The US-funded CBSI was launched in May 2010 with a US$45m budget for the first year of operation, and, in a sign of continuing, indeed deepening commitment, the allocation for FY2012 is US$77m (announced by US Secretary of State Hillary Clinton in June).

The expenditure split for the first year reflects the CBSI’s priorities:

            - US$14.5m for enhancing the control of maritime borders in order to reduce drug trafficking.  This part of the programme, which is linked to the “Secure Seas” programme managed by US Southern Command, includes the provision of interdiction boats, command and control communications equipment, and training.

            - US$10.6m for building law-enforcement capacity, including the professionalization of police forces, justice-sector reforms, and enhanced regional cooperation.

            - US$20m for crime-prevention programmes focused on at-risk youth, including the expansion of educational, social and employment opportunities.

It is, of course, too early to judge the impact of the CBSI, but fairly or not there have been some suggestions that there could have been more progress in the first year.  That there were “challenges” in the first year was accepted by the US’s Deputy Assistant Secretary for Central America, Julissa Reynoso.  She told the meeting in Guyana: “We have encountered many challenges but we believe that the CBSI provides a useful and necessary framework for coordination and collaboration with our partners in the Region.” 

This does not come across as overly effusive praise on the part of the US, but the increase in funding is real.  And while in remarks to the US House Foreign Affairs Committee on 13 October, Assistant Secretary of State William Brownfeld admitted that “hemispheric security is a work in progress” he also emphasized that “the purpose that drives our engagement in support of our regional neighbors [through programmes such as the CBSI] is one of critical importance that cannot be overstated”.

BOLIVIA | Chinese and Russian lithium contracts in doubt. On 27 May a court in the Bolivian department of Potosí ordered congress to suspend the approval process for lithium production contracts with Russia’s Uranium One Group and China’s CBC Investments Ltd. The judicial order came in response to an appeal against the contracts by the indigenous organisation Central Única Provincial de Comunidades Originarias de Nor Lípez (CUPCONL), which argued that the projects’ environmental impact had not been properly assessed. In response, state lithium company Yacimientos de Litio Bolivianos (YLB), which signed the contracts with the Russian and Chinese firms, said that it had not been properly notified of the legal action. YLB said: “When we’re notified in line with the law, we will present a report with a thorough technical and legal argument demonstrating that no individual or collective rights have been violated, including the rights of indigenous peasant peoples”.

The contracts with CBC and Uranium One Group were signed in 2024 and were hailed as a key step towards large-scale lithium production in Bolivia. Uranium One Group pledged an investment of over US$970m to produce 14,000 tonnes (t) of lithium per year. CBC agreed to invest US$1.03bn to develop two plants that would produce 10,000-25,000 t of lithium per year. Both companies would extract lithium from the Salar de Uyuni salt flats in Potosí department.

The projects have faced mounting opposition in Potosí, however, amid concerns that they will bring few benefits to local communities while causing significant environmental damage. In February this year the president of Bolivia’s lower chamber of congress, Omar Yujra of the ruling left-wing Movimiento al Socialismo (MAS), announced a pause on legislative discussions of the projects to enable closer engagement with local communities. President Luis Arce has expressed frustration with the delays. On 12 March he said that failure to approve the contracts could entail a delay of over a decade to the development of Bolivia’s lithium sector, by which time “lithium will be history and we’ll have new alternative energies”.

BRAZIL | Congress heads for the hills. Congress approved the Draft Budgetary Guidelines Law for 2013 (LDO) on Tuesday, allowing it to head into a two-week recess from 18 July to 1 August. The negotiations went down to the wire after the opposition refused to accept a government proposal to allow more flexible tendering rules for the state oil giant Petrobras, a proposal heavily criticised by the Tribunal de Contas da União (TCU). The proposal, though earlier given the nod by the joint budget committee, was excluded from the finally approved version of the LDO. The congressional president, Marco Maia of the ruling Partido dos Trabalhadores, also managed to sway the opposition with an executive promise for the release of some additional pork barrel funds ahead of October’s scheduled municipal elections.

The LDO sets the overall primary surplus at 3.1% of GDP, or R$155.9bn (US$77.2bn), and the treasury this week released a report in which it pledged to retain that surplus target until 2015. However, the bill gives the government the option to reduce the nominal surplus by up to R$45.2bn, or 0.9% of GDP, principally by investments through the national infrastructure scheme known as the Growth Acceleration Program (PAC).

The other macroeconomic parameters include real annual GDP growth of 4.5% in 2012 and 5.5% in 2013, both forecasts more optimistic than the private sector consensus, along with inflation of 4.5% this year and 4.7% next year. The minimum wage is slated to rise 7.35% to R$667.75 a month in 2013, from R$622 this year.

Prior to the recess congress also voted to sanction the executive’s Provisional Measures 563 and 564, which extend fiscal/credit incentives under President Dilma Rousseff’s ‘Brasil Maior’ plan, aimed at strengthening industrial productivity and competitiveness.

The congress has yet to discuss a new regulatory framework to divide up between oil-producing and non-producing states the new royalties generated from the vast offshore ‘pre-salt’ oil sector. With municipal elections due in October neither congress nor the executive has much interest in taking up this very tricky and politically sensitive topic, which has been kicked into the long grass for nearly two years now. However the cash strapped and overstretched Petrobras cannot hold any new auction rounds for the offshore sector until a new royalties’ framework is in place. Petrobras had hoped to hold the auctions later this year. The Rousseff government admits that the new framework probably won’t be discussed until 2013 now.

Concerns regarding the future of Venezuelan cooperation with Nicaragua following the death in March of President Daniel Ortega’s chief benefactor, Hugo Chávez (1999-2013), [RC-13-03] have yet to be dispelled. On 3 June Nicaragua’s influential private sector lobby, Cosep, reiterated its call for a formal bilateral free trade agreement (FTA), just one day after Chávez’s successor, Nicolás Maduro, paid a visit to Managua where he pledged to boost bilateral cooperation.

Cosep has been calling for a formal FTA since 2009 and its demands are not surprising given that Venezuela is Nicaragua’s second biggest trade partner after the US (with whom Nicaragua has an FTA via the Central American-Dominican Republic-US FTA). According to the latest figures from the Central American economic integration system (Sieca), Venezuela accounted for US$1.25bn of Nicaragua’s US$8.7bn worth of foreign trade last year, while the US accounted for US$1.85bn. Cosep’s calls add to long-standing concerns about the lack of transparency regarding bilateral cooperation which remains out of Nicaragua’s State budget. These fears are similarly not surprising given that Venezuelan cooperation accounted for 57% of Nicaragua’s total foreign cooperation in 2012, reaching US$765m, up 25% on 2011. Of this US$550.7m was petrol aid through Albanisa, the bi-national state oil company set up in 2007, 51% owned by Venezuela’s state firm, Pdvsa, and the remainder by Nicaragua’s Petronic.

Despite Maduro’s insistence that his visit signified a strengthening of relations, little emerged beyond deals spanning education, health, police cooperation and a partial agreement between the youth movements of Ortega’s Frente Sandinista de Liberación Nacional (FSLN) and Venezuela’s Partido Socialista Unido de Venezuela (PSUV). Indeed some local commentators attributed Maduro’s visit to Venezuelan concerns regarding the uses of Venezuela’s aid by the Ortega government. This speculation was fuelled by the announcement by Nicaragua’s comptroller general, Guillermo Argüello Poessy, that a “comprehensive audit” of Albanisa, whose Vice-President Francisco López doubles up as the FSLN’s treasurer, was underway. Opposition politicians like Eliseo Núñez Morales, of the Partido Liberal Independiente (PLI), also attributed the move to efforts by the Ortega government to balance its books ahead of the possible withdrawal of Venezuelan aid and the possibility that if this happens it may automatically be added to the public debt.

As widely flagged in advance, the US and Cuba have reached a bilateral arrangement to re-establish scheduled air services between the two countries, marking another important step towards the normalization of ties between the near neighbours.

The agreement, announced on 17 December, will allow 110 round trips a day between the two countries, including 20 to Havana airport and 10 to each of the other nine regional airports in Cuba. Scheduled flights are expected to begin late in the first quarter of 2016, after US carriers submit routes for approval. No commercial flights from Cuba to the US were included in the initial agreement. Unlimited charter services from the US to Cuba will continue alongside the new scheduled routes.

The deal will make it significantly easier for US nationals to travel to Cuba, and while general US tourism to Cuba remains prohibited, US changes - first announced a year ago (in January 2015) by President Barack Obama - have made it significantly easier for people to travel under one of the 12 permitted licences.

The US State Department noted that the new arrangement “will continue to allow charter operations and establish scheduled air services, which will facilitate an increase in authorized travel, enhance traveller choices, and promote people-to-people links between the two countries”. It added that “while US law continues to prohibit travel to Cuba for tourist activities, a stronger civil aviation relationship will facilitate growth in authorized travel between our two countries – a critical component of the President’s policy toward Cuba”.

US travellers will still have to meet the criteria for the 12 permitted general travel licences for travel to Cuba. These are: family visits; official government business; journalism; professional research and meetings; educational activities; religious activities; public performances, clinics, workshops, exhibitions and athletic competitions; ‘Support for the Cuban people’; humanitarian projects, activities of private foundations or research for educational institutes; exporting or importing information or information materials; travel related to authorized export transactions.

Under new rules introduced earlier this year, US travellers no longer have to apply for one of these licences, rather they merely have to state in writing before their flight that they qualify.

According to Jeffrey DeLaurentis, who as chargé d’affaires is the current head of the new US embassy in Havana, US travel to the island is up by 50% in 2015. In the first half of the year, the number of US visitors – excluding Cuban-Americans – reached almost 90,000, up 50% over the same period the previous year, with the year-on-year rate of increase accelerating each month.

Crackdown on Human Rights Day

On 10 December, International Human Rights Day, local independent and international media sources reported the detention and harassment of dozens of opposition activists in Cuba’s capital, Havana, and other cities, as activists including the high-profile Damas de Blanco protest group sought to mark the day. According to reports, a least 12 activists were detained in Havana en route to a Damas de Blanco gathering, with another 11were arrested in Guantanamo and 23 in Camagüey.

The Damas de Blanco group, set up by the wives and relatives of imprisoned political dissidents in Cuba, have protested President Obama’s move to restore diplomatic relations with the island, arguing that the White House has failed to exert sufficient pressure on the government led by President Raúl Castro to improve human rights and fundamental freedoms in Cuba. The protests came as Cuba’s attorney general, Dario Delgado, told the state mouthpiece Granma that Cuba had no political prisoners. “It is sometimes said there are political prisoners here. There aren't. The majority of those who call themselves dissidents are common inmates who have been attracted by counter-revolutionary organizations, internal or external, and receive payments directly or indirectly. But they aren't prisoners of conscience.”

In January 2015, the Castro government released 53 inmates that Washington considered ‘political prisoners’. However, the Cuban commission for human rights and national reconciliation (CCDHRN), an NGO, says that another 60 political prisoners remain in jail in the country. The CCDHRN claimed that there were at least 1,477 politically motivated detentions in November, the highest monthly total in many years. Amnesty International also released a statement to mark Human Rights Day noting “a wave of almost 1,500 arbitrary arrests in just over a month”.

As violent protests continue to rock Haiti, the government has responded with a number of measures designed to address public gripes. On 5 February, President Jovenel Moïse declared an economic state of emergency, outlining a series of measures to tackle the ailing economy. On 16 February, Prime Minister Jean-Henry Céant unveiled nine emergency measures that he hopes will raise living standards.

With the president now two years into his five-year term, problems are mounting. The public is tiring of a lack of progress on boosting the ailing economy, particularly given Moïse’ campaign pledges to improve basic physical infrastructure (including paving roads and tackling electricity shortages), provide food security, boost economic growth, and reduce corruption. The public perception is that not only has the government failed to fulfil these campaign pledges, but that in many cases conditions have worsened in recent months.

Weakening gourde lifts inflation

The local currency, the gourde, depreciated steadily over the course of 2018, but the currency incurred particularly sharp losses in the last quarter of the year, weakening from HTG67:US$1 in late September to over HTG77:US$1 at the end of the year. Currency depreciation continued in early 2018, with the gourde trading at close to HTG83:US$1 in mid-February. This bout of weakening is essentially explained by the monetisation of the fiscal deficit, which reached a record HTG34bn in the October 2017-September 2018 financial year. A lack of financing options has meant that the bulk of the deficit was financed by borrowing from the central bank (BRH), which in turn has raised the amount of liquidity in the domestic economy.

This has increased inflationary pressures: the latest data from the BRH shows that consumer price inflation came in at 15.1% in December, up from 13.2% at the beginning of the year. Given that local-currency depreciation has picked up pace in recent months and that the impact typically takes several months to feed through to consumer prices, many fear that inflation is likely to rise further in the coming months.

Government targets fiscal consolidation

The measures unveiled by the government in early February aim to tackle public disquiet in a number of ways. The cabinet has passed two resolutions: the first is targeted at improving conditions for vulnerable Haitians and is aimed at cutting the price of staple goods (through lifting subsidies), strengthening social welfare programmes and improving access to credit for small and medium-sized enterprises (SMEs).

The second resolution is focused specifically on the public finances and is aimed at cutting the fiscal deficit. The measures are mainly concentrated on the expenditure side, with the authorities seeking to trim spending. Public-sector workers are no longer entitled to new vehicles; they are prohibited from hiring vehicles until the end of the 2018/19 financial year; sharp cutbacks have been introduced to reduce overseas travel for public officials; and some benefits for all public-sector workers have been scaled back. In addition, salaries for senior public officials are set to be “streamlined”, which in practice is likely to involve a cloaked attempt to reduce spending on public-sector wages.

The prime minister’s unveiling of nine emergency measures on 16 February in many cases covered the same ground as the earlier announcements from the president. However, there were a few measures, including efforts to reduce smuggling of goods out of Haiti (which the government hopes will lift revenue), an admission that the government will consider raising the minimum wage, and renewed efforts to secure development aid from overseas creditors.

Economy unlikely to pick up

The government diagnosis of the problem is correct, in that targeting fiscal consolidation will reduce the extent of deficit monetisation, which in turn will ease pressure on the local currency and gourde. Cutting current expenditure would also, in theory, free up funding for capital infrastructure projects. However, it is highly questionable whether the government’s new measures will either materialise, or – if they do – whether they will have a material impact on the economy in the short term. Many of the fiscal measures have either already been attempted, or have been under discussion, with weak implementation capacity preventing a significant improvement in the public finances. Gripes with the extremely weak state of electricity provision will continue, given that it takes several years to tackle the structural problems behind this issue. As such, public disquiet with the weak economy will continue, with related social unrest also set to persist.

Cuba’s economy minister, Alejandro Gil, was replaced as part of a ministerial reshuffle announced on 2 February, which also involved changes in the ministries for the food industry and for science, technology, and the environment. Gil’s departure came amid rising tensions over government austerity plans, which include five-fold increases in fuel prices.

President Miguel Díaz-Canel dismissed Gil and appointed Joaquín Alonso, who had been serving as head of the central bank (BCC), to replace him. New ministers were also appointed in charge of the food industry (Alberto López, governor of Santa Clara province) and science, technology, and the environment (Eduardo Martínez, president of a state-owned pharmaceutical company). There was no official explanation for the changes, but they are likely linked to the country’s deep economic crisis and an internal conflict over the latest austerity measures. Official newspaper Granma said only that Gil had been “released from his duties”.

In December and January Gil, who was also deputy prime minister, had announced controversial plans to drastically cut back energy, transport, food, and medicine subsidies in an attempt to narrow the country’s fiscal deficit, which according to some estimates by experts cited by Spanish daily El País in a piece published on 12 February, is as large as 18.5% of GDP. A five-fold increase in petrol prices had been scheduled for 1 February. However, the authorities claimed a cyber-attack from abroad had forced a delay, shifting the date forward to 1 March, when the price for regular petrol surged to CUP132 (US$1.10) from CUP25. Gil’s dismissal suggests the plan remains hotly contested.

Gil had been economy minister since 2018 and was seen by many as the architect of failed policies, including tinkering with currency reforms and exchange controls, and banking restrictions. He had promised an economic recovery for 2023 but GDP is believed to have fallen by an estimated 2%-3% after earlier coronavirus (Covid-19)-related fluctuations (2020-2022). Inflation is running at around 30%. The outlook for this year is grim. Agriculture and food production has slumped. In the last week of February, the government said 34% of the power grid was offline and that it could not guarantee supplies of flour for bread.

Omar Everleny Pérez Villanueva, a former director of studies at Havana university, was cited by El País as saying Cuba in 2018 was “a better place” than now: “Cuba was receiving almost four million tourists, the purchasing power of the population was greater, there were no difficulties with fuel, the fiscal deficit was 8% with respect to GDP, and the basic food basket was accessible” he noted.

A 5 February briefing for World Politics Review by Robert Looney, a Cuba expert at the Naval Postgraduate School in Monterey, California, says efforts to reform the Cuban economy date back to 2010 when then-president Raúl Castro (2008-2018) sought to scale back the bloated state sector and introduce a limited form of “market socialism”. However, reform policies were inconsistent and resisted by the political elite. Growth averaged only 1% per annum in 2010-2022. In a more recent period (the three years to 2022), GDP has contracted by an average of 2% each year. Without bigger political changes it is hard to see a sustainable and successful outcome.

Looney says that the political old guard aims simply “to restore some semblance of macroeconomic stability in order to maintain the Communist Party’s grip on power in the face of recent signs of popular discontent, including the mass protests that spontaneously erupted in July 2021”.  

Probe announced into Gil

On 7 March, the Partido Comunista de Cuba (PCC) government announced an investigation into Gil. State mouthpiece Granma reported that he is accused of “serious errors in the performance of his duties”. While no further details were given, Granma says “the leadership of our party [PCC] and government has never allowed, nor will it ever allow, the proliferation of corruption, simulation and insensitivity”.

Emulating Vietnam

Interestingly, in the briefing for the World Politics Review, Robert Looney suggests Cuba might have tried to emulate the successful Vietnamese Communist Party economic reforms which began in 1986, but that would have involved granting a bigger role to the private sector, offering better conditions for foreign investment, and accepting greater domestic inequality of income – all steps that are resisted by the party leadership.

POLITICS | Taking the ass out of the assembly. On the 15 November deadline to register candidates for Ecuador’s 17 February general elections, a group of Guayaquil residents attempted to register a tie-clad donkey,‘Don Burro’, as a candidate for the legislative elections. Daniel Molina, Don Burro’s campaign chief, said: “We want to remind people to examine their conscience; that the vote to the [national] assembly is something very serious, we need to become aware of this and choose those who will legislate and know what they are doing. We don’t want to be detrimental to any candidate or political party”. The provincial electoral council of Guayaquil, however, refused Don Burro’s entry to the building and rejected his candidacy.

POLITICS| Diez Canseco suspended from congress. On 15 November Peru’s (unicameral) congress voted in favour of handing down a 90-day suspension to a prominent leftist congressman, Javier Diez Canseco, as recommended by the congressional ethics commission. Diez Canseco, who until recently was part of the ruling Gana Perú’s coalition bench in congress, was accused by some of his colleagues of drafting and attempting to pass a bill regulating share transactions in the local stock market which would directly benefit his ex-wife and daughter. He denied the accusations, saying that they were politically motivated by the right-wing ‘Fujimorista’ bloc in congress, which was “out to get him”. The accusations were duly investigated by the ethics committee, which found that Diez Canseco may have breached the ethics code by attempting to legislate on an issue in which he had vested interests and so should be sanctioned.

President Barack Obama has hinted at further measures to ease travel and trade restrictions with Cuba ahead of his visit to the island on 21-22 March. However, White House efforts to nudge Cuba’s Communist government to reciprocate by way of measures to improve human rights and fundamental freedoms on the island appear to have got short shrift in Havana, raising concern among critics that the trip could disappoint.

US government sources have hinted at a new package ahead of the Obama visit, to include additional changes to travel, trade and banking rules. Reportedly, the president is in particular mulling new reforms to make it easier for individual Americans to visit Cuba under the 12 permitted travel licence categories. To date, Americans travelling to the island under one of these categories typically must do so in tour groups (unless visiting family members). The administration is also considering possible revisions and clarifications as to how the dollar can be used in trade with Cuba, according to US press reports.

The Obamas will be accompanied on their trip by a bipartisan group of up to 20 members of congress, underlining the broadening coalition of support on Capitol Hill for the normalisation of US-Cuba ties. Republican Senator Jeff Flake (Arizona), a leading GOP advocate for the restoration of relations and the removal of the US embargo on Cuba, has confirmed that he will be on the trip.

Republican presidential contenders Ted Cruz and Marco Rubio (both of Cuban heritage) strongly oppose Obama’s moves, and have vowed to roll back all his measures to date if elected. However, in reality US business and popular support for engagement with Cuba is now the majority sentiment in the country and an eventual Republican president might find it politically difficult to dismantle the new arrangements, especially given the growing high profile US business interests on the island, ranging from AirBnB to Cargill and to leading American airlines, currently preparing to re-establish scheduled services to Cuba from various US airports. The other candidate within earshot of the Republican nomination, Donald Trump, has backed Obama’s moves to renew ties with Cuba; in inimitable fashion, the real estate mogul declared he would build a ‘Trump Tower’ in Havana.

The objections of Cruz, Rubio and others to Obama’s Cuba policy are centred on the fact that the government led by President Raúl Castro appears to have made little or no effort to allow for more fundamental and political freedoms in Cuba, as urged by the White House as part of its re-engagement. Cruz and Rubio have accused Obama of being “an apologist” for the Communist government. Reports coming out of Cuba suggest that the government continues with persistent low-level aggression against dissidents, with the security forces routinely rounding up and jailing them for short periods, in an effort to deter organised public activities.

On his trip, Obama will meet both with President Castro and Cuban dissidents, and hopes to deliver a public speech addressing all Cubans, according to the White House. Anticipating criticism, Obama said, in a series of tweets, that his trip aimed “to advance our progress and efforts that can improve the lives of the Cuban people”. “We still have differences with the Cuban government that I will raise directly. America will always stand for human rights around the world.”

In similar vein, Deputy National Security Adviser Ben Rhodes noted: “As the President has said, Cuba will not change overnight, nor will all of the various differences between our countries go away. But the guiding principle of our Cuba policy – our North Star – remains taking steps that will improve the lives of the Cuban people. That will be the President’s message on his trip – where he’ll have the opportunity to meet with President Castro, and with Cuban civil society and people from different walks of life. Yes, we have a complicated and difficult history. But we need not be defined by it. Indeed, the extraordinary success of the Cuban-American community demonstrates that when we engage Cuba, it is not simply foreign policy – for many Americans, it’s family.”

Josefina Vidal, director of US affairs at the Cuban foreign ministry, has made clear that Cuba is willing to have a frank mutual discussion between equals. “Cuba is open to speaking to the US government about any topic, including human rights…we have different ideas [about rights], in the same way that different ideas exist about other topics like democracy, political models and international relations”, she noted.

Kerry’s visit scotched

These difficulties of interpretation, and Cuba’s sensitivity to any suggestion of interference in its internal affairs, were evidenced with the abrupt cancellation of a trip to the island by US Secretary of State John Kerry, who told a congressional hearing on 23 February that he would go to Cuba for talks on human rights ahead of the Obama trip. On 3 March, officials confirmed that Kerry’s visit had been cancelled, saying that the State Department and its Cuban counterpart had failed to reach “common agreement” on aspects of Kerry’s trip, including his ability to speak with dissidents.

Kerry later spoke to the Cuban foreign minister, Bruno Rodríguez. A defensive-sounding State Department spokesperson, Jon Kirby, said that both men had committed to making Obama’s trip a success. He insisted that “the President has every expectation of meeting with dissidents down there in Cuba. There’s no question we continue to have concerns on the human rights issue in Cuba, and we’ve been very candid and frank about that, publicly and privately.” White House spokesman Josh Ernest echoed that, stressing that details of the trip were still being finalised. Marco Rubio, however, was scathing, noting that “the President of the United States, as the leader of the free world, should never have to negotiate the right to meet freedom fighters or raise issues of concern when travelling abroad”.

• Over 1,000 detentions in January

In January, the illegal but tolerated Cuban Commission for Human Rights and National Reconciliation recorded 1,414 political arrests on the island. It said that most were short-term detentions

Costa Rica appears to have made some progress in finding a solution to its fragile fiscal position, but ratings agencies warn the danger has not passed.

On 21 January Costa Rican authorities released better than forecast fiscal results for the end of 2020, with a fiscal deficit of 8.1% and a debt-to-GDP ratio of 67.5%. The fiscal deficit is up from 6.94% of GDP in 2019, but less than the official forecast of 9.2% and the 9.5% estimated by the Organisation for Economic Co-operation and Development (OECD) in a December 2020 report. According to official figures, as of December 2020 central government debt totalled ¢24.29bn (US$39.6bn), equivalent to 67.5% of GDP, of which 76.2% is domestic and 23.8% is external. the better than feared results are encouraging, but they are still cause for concern. 

President Carlos Alvarado thinks that one way of getting a handle on the financial shortfall is through making a deal with the International Monetary Fund (IMF). As a result, there was cause for celebration in government circles on 22 January, when officials announced a staff-level agreement with the IMF for a three-year Extended Fund Facility (EFF) worth around US$1.75bn. The programme, which awaits approval by the IMF management and executive board, as well as Costa Rica’s national assembly, aims to boost macroeconomic stability, support a recovery from the economic crisis derived by the coronavirus (Covid-19) pandemic, and “help promote inclusive and sustainable growth, including through innovative digitalisation and climate-change mitigation and resilience building”, according to the IMF.

The aim is to achieve a primary fiscal surplus of 1% of GDP by 2023 and reduce public debt, said the IMF. Finance Minister Elián Villegas told local media the aim is to bring the debt down to 50% of GDP by 2035. Proposed measures to boost the tax intake include a 0.5% tax on houses worth over ¢150m while 14 state-owned companies, such as the postal service and the electricity utility, will contribute up to 30% of their profits to paying government debt for four years, among other things. Other measures include proposed customs reforms which aim to reduce tax evasion and contraband while congress is also discussing a bill on public employment which would regulate salaries in the state sector.

While the government hailed the IMF agreement as a first step, the challenge is far from over - particularly in securing its approval in the deeply fragmented 57-member unicameral national legislature in which the ruling Partido Acción Ciudadana (PAC) has just ten seats. In interviews with national daily La Nación, published on 27 January, analysts for international credit ratings agencies, Moody’s Investors Service, Fitch Ratings and Standard & Poor’s (S&P) all highlighted as the “main obstacle”, the process of getting the programme and associated reforms, approved by the legislature. A 14 December 2020 statement by Fitch highlighted as a sign of the legislature’s “fraught relationship with the executive”, legislators’ refusal to approve a US$245m loan from the Inter-American Development Bank in November 2020.

Meanwhile in the La Nación article Moody’s analyst, Gabriel Torres, underlined the gravity of the situation, warning of the high risk of an economic shock. “The IMF is the last chance Costa Rica has before a big crisis and a possible default”, said Torres. “If [the plan] is not approved, the market will be spooked”, Torres added. The December 2020 Fitch statement also warns that Costa Rica is not out of the woods even if an IMF deal is approved, citing a “wide fiscal deficit, high borrowing costs and post-pandemic recovery challenges” (see sidebar).

• Economic recovery?

The latest figures from Costa Rica’s central bank’s (BCCR) monthly economic activity index (Imae) show signs of recovery, recording a 6.5% year-on-year decrease in November 2020, the smallest fall since the start of the pandemic back in March. However, Fitch believes that significant fiscal adjustment is needed because of the differential between GDP growth and borrowing costs. The agency said Costa Rica should aim for a 2.5% primary fiscal surplus by 2025 to stabilise the debt ratio.

The strength of oil prices should mean that the government will be able to get through until the elections at the end of 2012 without a major change in its peculiar mix of economic policies.

Essentially the government uses high oil prices to flood the domestic market with liquidity. This means that non-oil sectors do OK when oil prices are strong but few long term investment decisions are made by the private sector.

At a small scale level, it is worth noting that all imports of new cars into Venezuela have to be approved by the government. As a result, the number of new cars sold in the first 11 months of 2011 was under 14,500. Before the quota system was introduced in 2007, Venezuela was importing almost 340,000 new cars a year. In the first 11 month of 2011 the total number of new cars sold was 108,779, down 5.5% on the same period of 2010. In 2007, 500,000 new cars were sold.

The government’s policy of flooding the local money market with Bolivares, which no-one wants, has mean that banks have increased the amount of cash they leave in the central bank, In mid December they had BF51.5bn in the central bank, up from a monthly average of BF16bn in 2010. Bankers say that demand for credit is weak and even though the government has been issuing lots of domestic debt, the inflow of Bolivares is higher.

The Banco Central de Venezuela noted that, between 2007 and 2010, private sector investment in new equipment or buildings fell 44%. Even though the economy is now growing again, the private sector is still leery about increasing its capital expenditure.

As interest rates are below inflation, money is flowing out of the banking system. The government is, however, able to borrow at below inflation from the banks and kick the money into its own capital projects. 

This peculiar mix of policies is leading to higher inflation.  On 6 December the central bank reported that monthly inflation in November was 2.2%.

This is notably higher than the 1.8% rate recorded in October and pushes the 12 month rate back up to 27.6%. The big problem is food price inflation which is running at 31% a year, despite the government’s efforts to boost production and control prices.

The government’s efforts to control prices, through a new law of just prices and costs, which took effect on 22 November, has been heavily criticised by the Right. What business has been more silent about is agriculture’s failure to respond to some pretty heavy pump-priming: in the past two years, lending to agriculture has increased by 93% in nominal terms. In real terms this is an increase of between 25% and 30%, yet output has not budged.

Indeed, on central bank figures, agricultural output has been falling since 2008. Data on what has happened in the first nine months of this year is opaque, because agriculture is now lumped in with “other” sectors of the economy, so small is its contribution to GNP. To be fair this sector did register a small increase in output from the second to the third quarters of this year. 

The International Monetary Fund (IMF) has praised the Guatemalan government for its “prudent economic management,” but called on President Bernardo Arévalo to do more to increase growth and reduce poverty.

In its report published 12 September following the conclusion of an Article IV mission to Guatemala, the IMF underlines the country’s resilient economy, low inflation, ample policy buffers, and a positive current account in recent years, which have improved market access. However, it also notes that informality is running at 70%, poverty was at 55% in 2023, and social indicators remain “lacklustre”, urging the government to do more to address this.

Since coming to power in January 2024, Arévalo has introduced a number of poverty reduction efforts, including two cash transfer programmes designed to alleviate the high cost of living. The economy ministry also moved to stabilise supplies of rice, maize, and beans and to reduce price speculation in June 2024, and Arévalo also extended electricity subsidies for poor households. His government upped the budget for the national council for food security and nutrition (Conasan) by 33% from 2024 to 2025, and the 2025 state budget included significant increases in social spending.

However, the IMF says that these efforts are insufficient, and “reforms are needed to shift the country into a high investment/high growth equilibrium and to meaningfully reduce poverty”. It highlights public spending that is “too low and unevenly distributed to meet its core development challenges,” resulting in “limited and uneven access to essential services”.

Poor social development outcomes demonstrate insufficient spending due to restricted public budgets but also inefficiencies in allocation and delivery, said the IMF, underlining fragmented, poorly targeted programmes that spend more on administration than frontline services. The Fund said that “maintaining growth momentum and achieving sustainable and inclusive growth in the medium term will require determined implementation of reforms including better-quality public spending and continued improvements in governance and the business climate,” recommending revenue and expenditure reforms.

One cited example is the continuing ongoing effort to increase the capacity of tax administration in order to broaden the tax base and thereby gain fiscal space: the IMF highlights the increase in tax revenues from 10% of GDP in 2020 to 11.8% in 2024, but it calls for further efforts to meet the government’s stated target of 12.5%. The Fund also highlights persistently low levels of public spending, which are among the lowest of any developing economy. Combined spending on education, health, and social assistance was below 6% of GDP in 2024, lower than regional peers and countries with a similar national income. Improvements could be made through better targeting of social programmes and spending efficiency, as well as better budget planning and execution.

According to the IMF, Arévalo has “demonstrated a strong will to improve spending quality”. However, the Fund recognises that the president faces a difficult situation in the shape of a standoff with Attorney General María Consuelo Porras, whose continued presence is one of the main obstacles holding back his efforts to enact change. “Domestically, the political opportunities for advancing necessary reforms remain constrained,” acknowledges the IMF, which also underlines uncertainty in trade and migration policy. 

For example, US President Donald Trump’s tariff policy is cause for concern, and could deepen dependence on remittances, according to Ricardo Barrientos, the executive director of regional thinktank Instituto Centroamericano de Estudios Fiscales (Icefi). At the same time, Trump’s hardline immigration policy could impact the value of remittances in the medium- and long-term, despite a recent spike as many migrants have increased the amount of money they send home.

• Remittances up

In September Guatemala’s central bank (Banguat) released new figures showing that remittances to the country totalled US$2.368bn in August, up from US$2.366bn in July and the highest monthly total so far this year. This brings remittance inflows so far this year to US$16.861bn, up from US$14.108bn in the same period in 2024. Guatemala closed 2024 with US$21.510bn in remittances, up 8.6% on the previous year and reaching nearly 20% of GDP according to a World Bank April 2025 update.

Taken together, these factors complicate the outlook for Arévalo’s poverty reduction efforts. Although the president does appear committed to improving the lives of Guatemala’s poor, with the General Government Policy (PGG) 2024-2028 setting out the expansion of coverage and quality in education and health, the reduction of chronic malnutrition, investments in rural infrastructure, and a more coherent approach to social protection as key objectives, his ability to do so is limited by fiscal and political constraints. 

Given downside risks resulting from US tariff and immigration policy, there is also a chance that more families fall below the poverty line as Guatemalan domestic industries suffer economic impacts and the value of remittances falls as a growing number of migrants are deported. This would likely leave many without sufficient income to afford basic essentials, with the added burden of deported migrants now living back at home, either looking for work or unemployed. As a result, it is unlikely that there will be any meaningful progress in reducing poverty in Guatemala in the coming years, contributing to a growing sense that Arévalo has failed to live up to his reformist promises.

The trade and industry ministry reported that the country had received over US$1bn in private sector investment in the past three years (i.e. since President Fernando Lugo came to power on 15 August 2008). Most of the money has gone into free trade zones. The ministry said that 314 private projects operating under Law 60/90 had received investment of G$4 trillion (US$1bn). These investments had, the ministry said, created 7,600 jobs and contributed total export revenues of US$300m. One of the most successful industries has been motorcycle assembly. This has attracted investment of US$133m and the creation of 9,366 new jobs, according to the ministry.

Arguably, Lugo’s big economic failure has been his inability to get a proposal to levy personal income tax through congress and into law. His predecessor Nicanor Duarte (2003-2008) also tried and failed to get such a law passed.

Paraguay is now the world’’ fourth biggest soya exporter and the fifth biggest soya grower.  The country’s beef exports have also done well, until running into problems in Russia this month. On 8 August Russia banned two Paraguayan companies from shipping beef into its market because of salmonella in a couple of containers shipped in November 2010. Russia has been Paraguay’s fastest growing beef market. Paraguay is the world eighth biggest beef exporter and the 16th biggest beef producer.

Poverty: Between 2008 and 2009 poverty fell from 37.9% to 35.1 % of the population, while extreme poverty fell from 19% to 18.8%.

Inflation: Annual inflation was 8.7% in July.

ARGENTINA | Oil trouble in Neuquén.

Workers at two oil companies in Neuquén - Petrolera Argentina and Renesa - called off a strike, due to start on 11 July, to oppose management plans to dismiss 300 employees, after intervention from the federal government. Both companies, which were formally merged in January 2013, have been struggling with falling production and sales.

Jorge Capitanich, the cabinet chief, and Carlos Tomada, the labour minister, held talks in Buenos Aires on 8 July to defuse tension in the short-term with Guillermo Pereyra, a senator for the Movimiento Popular Neuquino (NPM) and local oil workers’ trade union leader (see sidebar); Miguel Galuccio, chief executive of the state oil company Yacimientos Petrolíferos Fiscales (YPF); and businessman Miguel Schvartzbaum, who controls the Neuquén companies. Schvartzbaum agreed to revoke the suspensions a week earlier of 77 workers from the Renesa refinery. A dialogue table has now been set up to try and reach a definitive solution to the impasse.

Neuquén governor Jorge Sapag reportedly sought help from the federal government in Buenos Aires to avoid the lay-offs. However, the governor is at the same time involved in a dispute with the federal government over the latter’s attempt to standardise the treatment of oil taxes and royalties.

Schvartzbaum, who controls the Neuquén companies, says the proposed new hydrocarbons law backed by the federal government and Galuccio is designed to squeeze out smaller provincial oil players such as his own. He said Galuccio was “the real energy minister” and accused him of acting as a ‘mafioso’.

CHILE | Massive infrastructure plan unveiled.

President Michelle Bachelet announced a US$27.58bn national infrastructure plan over the next seven years designed to drive economic activity and modernise Chile. This is the equivalent of 3.5% of GDP (one percentage point more than Chile presently invests in infrastructure). It includes US$18bn of public investment and US$9.58bn in new build-and-operate concessions.

“We will only develop if we invest heavily and in a sustained manner in public infrastructure,” Bachelet said while visiting Arturo Merino Benítez international airport in Santiago, the subject of a US$655m expansion plan, the first concession project.

A range of regional projects are planned, such as a US$3bn programme to improve connectivity in the far south and the far north - Plan de Conectividad Austral and Plan Arica y Parinacota respectively - and to pave rural roads; the expansion of regional airports; the construction of two desalination plants in the northern Antofagasta and Atacama regions; the construction of seven big and 15 small reservoirs; and upgrades to ports.

• Guillermo Pereyra

Guillermo Pereyra is allied with Hugo Moyano, the dissident leader of the umbrella trade union organisation Confederación General del Trabajo (CGT). Pereyra won a senate seat in last October’s elections, crushing his nearest challenger from the Frente para la Victoria (FPV) of President Cristina Fernández.

Kenia Porcell, Panama’s attorney general, has revealed details of a new corruption scandal involving local construction companies; but some campaigners still accuse her of taking a “selective” approach to prosecuting wrong-doers.

The latest corruption scheme, code-named ‘Blue Apple’ by prosecutors, is similar, but on a smaller scale, to the scandal that blew up around Odebrecht, the Brazilian construction company which paid bribes in many Latin American countries, including Panama. Porcell said the new scandal involved a group of local construction companies that were paying bribes equivalent to 5%-10% on top of the value of commissioned work, as a way of securing big government contracts, and a guarantee of speedy payments, from the ministry of public works and housing in 2011-2012. Prosecutors were investigating 33 persons of interest. Seven construction companies had been involved. The total value of the bribes was around US$40m; the illicit payments were made through a paper company called Blue Apple Services (hence the name of the investigation). The authorities had recovered some US$20m of the bribes paid and a further US$5m-worth of assets had been confiscated.

Reaction to the news was mixed. Annette Planells, leader of anti-corruption lobby group Movin (Movimiento Independiente), said this was an important and positive development. Economist Rolando Gordón of Universidad de Panama said it this was the first time kickbacks in public works, which had been endemic since the 1970s, were being properly addressed. But Ernesto Cedeño, a lawyer, said that as in the Odebrecht case, Porcell was limiting the investigation to wrong-doing under the previous government of President Ricardo Martinelli (2009-2014), and not following up evidence pointing to involvement by officials in both the preceding and the current administration of President Juan Carlos Varela. Other campaigners also complain that despite leaks, many of the names of the accused in both the Odebrecht and Blue Apple cases remain under wraps.

Corruption has been a perennial problem across Latin America, and acutely so in the Northern Triangle countries. Lobby group Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI) which covers 180 countries and measures corruption on a 0-100 scale, where 0 is highly corrupt and 100 is very clean. The 2017 index (published in February 2018) found that more than two-thirds of the countries covered scored below 50 and that the global average was 43. El Salvador had a score of 33, meaning it is seen as significantly more corrupt than the global average. It was ranked 112^th out of 180 countries. Honduras scored 29, ranking it 135^th in the world, and Guatemala had the poorest performance, with a score of 28, ranking it as 143^rd in the world. This meant that all three countries fell into the third quartile of the ranking, although Guatemala was very close to dropping into the fourth or bottom quartile.

In its commentary on the results TI pointed out that there have been “great strides” in the battle against corruption in Latin America, with major investigations in countries like Brazil and growing anti-corruption movements in a number of countries. Yet despite this “the region continues to score poorly”. Progress in the Northern Triangle has clearly been limited. The report highlighted the situation in Guatemala where the attorney general’s office and Cicig were investigating politicians and businessmen for cases of corruption, including illegal campaign funding by President Jimmy Morales. Yet it acknowledged there was a danger of a standstill, arguing “it is vital to promote an integral approach that tackles key structural issues, including political funding, public procurement, and the strengthening of independent, strong, and flexible legal institutions”.

Corruption intensifies a range of connected problems in the three countries we are examining. It leads to economic inefficiency and a misallocation of resources. Worldwide, corruption is estimated to cost around 2% of GDP, but the indications are that losses in the Northern Triangle exceed that proportion by a significant margin. TI distinguishes between ‘grand corruption’ – major cases of fraud and theft – and the smaller scale everyday corruption, usually associated with business that must necessarily be transacted with officials. For the poor, paying bribes takes up a greater proportion of their income, meaning that corruption works as a major regressive tax. A survey carried out in 2017 in 20 Latin American countries by TI found that 62% of respondents felt that corruption had increased. On average, just under one in three respondents (29%) who had used key public services – schools, hospitals, acquiring ID documents, utilities, police and courts – had paid bribes. In Honduras 33% had paid bribes; the proportion was 31% in El Salvador and 28% in Guatemala. The survey found that in Honduras people reported the highest level of bribery when dealing with the courts: 56% of people who had used the judicial system said they had paid a bribe in the preceding year.

Source: Transparency International

Grand corruption is one of the top political issues in the Northern Triangle because it appears that a succession of governments have been ‘captured’ by corrupt interests. Notoriously, Guatemala’s president Otto Pérez Molina and Vice President Roxana Baldetti were found to be the leaders and beneficiaries of the La Línea customs corruption scandal: following investigations by the attorney general’s office and Cicig they were removed from office and imprisoned in late 2015. The scandal over corruption led to the election of Jimmy Morales the following year, on the slogan that he was “neither corrupt nor a thief” (ni corrupto ni ladrón). However, despite that claim, he and members of his family have been under investigation for a range of alleged improprieties, including using illegal funding for the election campaign, tax evasion, and receipt of inappropriate publicly funded bonus payments.

Confidence in the judiciary has been so low that both Guatemala and Honduras have – despite opposition from a range of lobby groups – accepted outside legal help. Guatemala has used the UN-backed Cicig, while Honduras has set up the Organisation of American States (OAS)-supported Mission to Support the Fight against Corruption and Impunity in Honduras (known by its Spanish acronym MACCIH). The work of both institutions has been widely resisted by parts of the political and business establishment.

There is evidence to show grand corruption is indeed a major structural problem. Political parties need large amounts of cash to fight election campaigns: they sidestep funding rules to take money illegally from business interests or drug-trafficking cartels. This means that if successfully elected, new governments are compromised and forced to do their secret supporters’ bidding. One of the clearest examples of this process came in December 2016 when Brazilian civil engineering group Odebrecht admitted paying US$788m-worth of bribes in Brazil and 11 other countries, including Guatemala. Documents revealed that Odebrecht helped fund seven presidential election campaigns in Latin America and Angola; it advised candidates on what type of public works could be included in their electoral promises and then in return expected to be awarded the large associated construction contracts. In Guatemala Odebrecht admitted paying US$18m in bribes during the Pérez Molina presidency, to secure various contracts, including a US$399m highways project.

Growing levels of corruption have been one of the most dramatic manifestations of the Brazilian crisis. Setting minor and mid-sized cases aside for the moment, the country has experienced two gigantic corruption scandals, the ‘mensalão’ (‘big monthly payment’) case that began to be investigated in 2005, followed by the ‘lava jato’ (‘Car wash’) scandal that began formal investigation in 2014. The net effect is that for no fewer than 13 years (2005-2018) Brazilians have been hearing about corruption in the government and the political establishment on a constant, relentless, and daily basis through the media. This helps explain public anger and the perception that this problem has been completely out of control.

As mentioned, the mensalão scandal began in 2005 during the first of Lula da Silva’s two consecutive presidential terms (2003-2011). The central allegation was that members of congress were being paid the equivalent of US$12,000 a month to vote in favour of the government on key bills. The money was reportedly being siphoned off from state-owned companies and was being paid to members of various different political parties. The court investigation into the case took seven years and went up to the supreme court. Among those convicted was José Dirceu, Lula’s former chief-of-staff.

The lava jato case evolved from a relatively small-scale investigation into alleged money-laundering dating back to 2008. The name was adopted because some of the initial suspects were said to be using a chain of petrol stations (with jet washes) to handle and exchange illicit funds. Over time the investigation expanded, revealing a much larger and wider-ranging network of corrupt practices. In March 2014 Federal Judge Sérgio Moro, based in Curitiba, took command of the case. Moro gained a reputation for rigorous investigation; later, in 2018, he went on to accept Bolsonaro’s offer to become justice minister in the new government.

At the core of the case is the allegation that over a dozen large Brazilian construction companies paid multi-million-dollar bribes to secure contracts with state-owned oil company Petrobras. The bribes – totalling around 3% of contract values – were skimmed off the top and shared out between the executives concerned, and the political parties and individual politicians who had a say in appointing those executives in the first place. Payments were often channelled through shell companies and banks overseas, including some based in Panama and Switzerland. While largely used to favour pro-government parties and politicians, some payments were also made to opposition politicians, leading to the growing conviction that much of Brazil’s political establishment had been, and remained, deeply complicit with corrupt practices over a number of years.

The lava jato investigation in turn led to the uncovering of related cases which incriminated top political and corporate leaders. Odebrecht, previously regarded as one of Brazil’s top, blue-chip civil engineering companies, admitted in December 2016 that it had paid US$788m in bribes to win contracts in Brazil and 11 other countries. Chief executive Marcelo Odebrecht was given a 19-year prison sentence. JBS SA, Brazil’s and the world’s largest meat processing company, was found to have also paid large-scale bribes to health safety inspectors and to politicians. One of its owners, Joesely Batista, admitted to paying US$123m in bribes to three Brazilian presidents (they all denied receiving any illicit payments).

A key conclusion is that Brazil did not suffer a random clustering of big corruption cases that just happened to come along at roughly the same time. On the contrary, the details of these cases suggest that corruption has become somehow embedded in the country’s business and political model. The details of the Odebrecht bribery system are key. The company had developed a way of illicitly funding Brazilian party-political election campaigns. It would then ‘call in the favour’ from victorious candidates who, once in office, were expected to use their influence to ensure Odebrecht got its share of big public-sector construction contracts. Other construction companies also joined in with a cartel deciding who should ‘win’ which contract.

This basic corruption model was then ‘internationalised’. Two key figures in this process were a husband and wife team of political consultants, João Santana and Mónica Moura. Santana made his name running the successful 2006 re-election campaign in Brazil for former president Lula. He and Moura also managed the equally successful campaigns in 2010 and 2014 for Dilma Rousseff (2011-2016), Lula’s successor and fellow member of the left-wing Partido dos Trabalhadores (PT). Santana and Moura, who were arrested in 2016 on corruption charges – and were subsequently released after entering plea bargaining deals – testified in court that in 2009, Lula had asked them to manage the (ultimately successful) campaign of Mauricio Funes, the left-wing presidential candidate in El Salvador. This was the first of seven Odebrecht-financed presidential campaigns they worked on across Latin America and Angola. While Santana concentrated on advising the candidates on campaign tactics, Moura handled the money, using a front company and Swiss bank accounts. Information extracted from Odebrecht suggests that this international bribery paid a handsome rate of return. From 2006-2016, the company admitted making US$439m worth of illicit payments in 11 countries outside of Brazil. By its calculations, those payments brought in contracts on which the company made an accumulated profit of US$1.4bn – in effect more than tripling its initial outlay.

One of the key questions for the next ten years is whether Brazil can significantly reduce the role of corruption in public life. Apart from anything else, corruption is one of the chief enemies of economic efficiency and sustainable development. It has a deeply corrosive effect and undermines the integrity of policy decisions in many areas. A 2010 study by FIESP (the federation of industries of São Paulo state) suggested the real cost of corruption in the country could be somewhere between 1.4% and 2.3% of GDP. Other later estimates have been higher.

In recent years there has been some progress through anti-corruption reforms. Corporate contributions to party political campaigns are now forbidden (although there is evidence that they still happen through indirect routes). The judiciary has been able to secure resources to carry out investigations, has successfully retained a degree of political independence, and has developed new techniques, including the effective use of plea-bargaining. On the other hand, conviction rates remain relatively low and the legal system continues to be bureaucratic and slow-moving. Officials in key ministries and members of congress enjoy what is know as a ‘foro privilegiado’ – a form of partial immunity, meaning that for crimes of corruption, they can only be tried by the supreme court. With a backlog of cases stretching to years, this means that they are relatively protected.

The essential problem for the future is that Brazil needs to develop a business and political model that does not vitally depend on corruption. At present (as will be further explained in the next section) corruption tends to be the ‘glue’ that holds together multi-party political coalitions and enables presidents to get bills through a deeply fragmented legislature. A better system that does not depend on illicit payments to make things work, is needed.

It is also worth noting that a party-political approach to combating corruption is unlikely to succeed. There is a temptation, along with real evidence, to assert that corruption flourished under left-wing PT governments; remove those governments, some argue, and the problem will be solved. The narrative of incoming President Bolsonaro and his supporters is indeed that by imposing a major electoral defeat on the PT they have dealt a blow to the heart of corruption in Brazil. But despite that, all the evidence suggests that corruption is an issue that runs right across the political spectrum. Bribes have been paid to almost all parties, with up to 30% of the members of the outgoing congress facing some kind of allegation of impropriety.

The outgoing centre-right government of President Michel Temer faced multiple allegations of corruption. While it is true that Bolsonaro and his small Partido Social Liberal (PSL) have faced no significant corruption allegations and can therefore claim to be unusually clean, this may reflect the fact that for many years they have been on the margin of mainstream politics. As they become mainstream, accusations are likely to emerge: indeed, during the election campaign the PSL was accused of receiving undisclosed corporate help for its social media campaign, and future economy minister Paulo Guedes has been accused of insider trading. Ultimately, meaningful anti-corruption policies will require cross-party support.